Caught between the need for fiscal austerity and the demands of an election-cycle fast approaching, the PML-N-led coalition government has opted for a development budget that navigates between the promises of the past and the difficulties of the near future. The just-presented budget of Rs727 billion for federal Public Sector Development Program (PSDP) for FY23 is a compromise between the ongoing fiscal’s budgeted Rs900 billion PSDP and actual spending of Rs550 billion (as per the budget speech).
In nominal terms, the FY23 PSDP budget of the PML-N is at the same level as its FY16 PSDP budget and much lower than the Rs1.001 trillion PSDP budgets it had presented in its last fiscal year in office back in FY18. In real terms, the contrast is much worse. In recent years, federal PSDP spending has shrunk in terms of share in GDP as well as share in overall government expenses. Provincial PSDP allocations could make up for the shortfall, but the federal urge to show provincial surplus affects actual spending.
There are close to 50 ministries, divisions, public-sector enterprises and provincial projects receiving federal PSDP funding. The top-ten recipients typically account for about 80 percent of PSDP budget in a given year. During FY23, those beneficiaries are the National Highway Authority, Water Resource Division, Cabinet Division, Special Areas (AJK and GB), Merged Districts of Khyber Pakhtunkhwa, Higher Education Commission, NTDC, Planning & Development Division, Railways, and Provincial Projects.
Infrastructure-related projects continue to be the focus of the PML-N-led government, as the top-five recipients (in the order mentioned above) constitute 54 percent of PSDP budget for next fiscal. Reportedly several new development schemes have been added into already-stretched-out PSDP portfolio, which will complicate the process of funding projects that are near completion. On the other hand, facing such a short governance timeframe, this government can only plan for short-term goals.
Cognizant of the urgency to finance development projects that are near completion and fund the projects of critical national importance, the Planning folks had reportedly asked for at least Rs800 billion PSDP for next fiscal. Q-block folks discounted that sum by about 10 percent, and now the Shehbaz government can greet the new fiscal with a PSDP budget that can make some difference if 90 percent+ utilization are achieved by end of FY23. Whether this government is able to stick around until then is a big question.
However, amid current crisis that necessitates a massive slowdown in economic activities (a process also referred to as ‘demand destruction’ by some economists), development spending will remain an afterthought. If the fiscal space continued to squeeze, the government may not be able to spend all of the budgeted development spending. But if external situation improved (if there is strong reduction in trade deficit and significant increase in multilateral inflows), the ground will be clear to spend more on PSDP.
Considering there are political uncertainties as well, the government may try to spend more in the first quarter (Jul-Sep), in order to maximize impact. But then there are fiscal realities that may interfere. Until the IMF disbursements take place (which may happen in July or August if all goes well), it will be a tight fiscal ship to steer, hence limited PSDP spending. And once IMF is brought back into fold, the Fund may be more keen on containing deficit than allowing higher development spending. It’s a catch-22 situation.